Relationship Banking

This paper examines critical aspects of international banking law, focusing on the banker-customer relationship, defenses in SWIFT fraud cases, and the structure of syndicated loan agreements. The study provides an in-depth analysis of the ambiguity surrounding terms like "banker," "banking business," and "customer," offering insights into the evolving nature of these relationships in banking law. It also explores the legal defenses available to banks in fraud cases involving SWIFT transactions, such as fraud committed by external hackers, recipient banks' knowledge of fraud, and abnormal circumstances. Lastly, the paper delves into the mechanics of syndicated loan transactions, evaluating the roles and liabilities of the lead manager, agent bank, and lending members. The analysis concludes by providing a comprehensive view of how international banking institutions navigate these complex legal frameworks.

Empirical evidence suggests that even those firms presumably most in need of monitoringintensive financing (young, small, and innovative firms) have a multitude of bank lenders, where one may be special in the sense of relationship lending. However, theory does not tell us a lot about the economic rationale for relationship lending in the context of multiple bank financing. To fill this gap, we analyze the optimal debt structure in a model that allows for multiple but asymmetric bank financing. The optimal debt structure balances the risk of lender coordination failure from multiple lending and the bargaining power of a pivotal relationship bank. We show that firms with low expected cash-flows or low interim liquidation values of assets prefer asymmetric financing, while firms with high expected cash-flow or high interim liquidation values of assets tend to finance without a relationship bank.

William Lang, and Jacob Paroush for their helpful comments. The authors gratefully acknowledge the support of Cathy Lemieux, and research assistance of Gulcin Afres, Sreedhar Bharath, Danny Chang, Yonca Ertimur, Gijoon Hong, Victoria Ivashina, Ahmet Karagozoglu, Elena Smirnova, Anand Srinivasan, and Jack Wozek. The opinions expressed in this paper are those of the authors, and do not necessarily represent those of the Federal Reserve Banks or the Federal Reserve System. Finally, the authors would like to thank two anonymous referees and the editor Mark Flannery for their helpful comments. The Role of Bank Advisors in Mergers and Acquisitions This paper looks at the role of commercial banks and investment banks as financial advisors. In their role as lenders and advisors, banks can be viewed as serving a certification function. However, banks acting as both lenders and advisors face a potential conflict of interest that may mitigate or offset any certification effect. Overall, we fin...

Bank credit has evolved from the traditional relationship banking model to an originateto-distribute model. We show that the borrowers whose loans are sold in the secondary market underperform their peers by about 9% per year (risk-adjusted) over the threeyear period following the initial sale of their loans. Therefore, either banks are originating and selling loans of lower quality borrowers based on unobservable private information (adverse selection), and/or loan sales lead to diminished bank monitoring that affects borrowers negatively (moral hazard). We propose regulatory restrictions on loan sales, increased disclosure, and a loan trading exchange/clearinghouse as mechanisms to alleviate these problems.

Following Miles and Snow's Business Strategy (BS) topology, we find that banks impose relatively higher loan spreads for the firms that follow an Innovation-Oriented Business Strategy (IOBS). We further document that IOBS is positively associated with corporate risk measures such as variances in equity returns and returns on assets. Overall, our findings suggest that banks charge a higher cost of debt in anticipation of borrowers' payback riskiness from an IOBS.

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Upper Devonian continental and subaqueous sedimentary rocks and bimodal volcanic rocks of the Boyd Volcanic Complex of the south coast of New South Wales were deposited in a rapidly subsiding, 330°-trending, transtensional basin. Structural analysis of synvolcanic and synsedimentary deformational structures indicate that basin formation is related to a 330°-orientated subhorizontal σ1 and a 060°-orientated subhorizontal σ3, which account for the development of the observed intrusion and fracture orientations. Rhyolitic, basaltic and associated clastic dykes are preferentially intruded along extensional 330°-trending fractures, subordinately along sinistral, transtensional 010°-trending fractures and along 290°-trending fractures. One of the implications of such a palaeotectonic reconstruction is that the so called north-trending Eden-Comerong-Yalwal Late Devonian rift does not represent a simple, single palaeobasin entity, but is presently a north-trending alignment of exposures of sedimentary and volcanic rocks probably emplaced in different basins or sub-basins, mildly folded during the Carboniferous Kanimblan compression (which also formed the north-trending Budawang synclinorium) and then extended to the east by the Tasman Sea opening during the Jurassic. The development of scattered, rapidly subsiding, basins characterised by bimodal volcanism during the Late Devonian throughout the Lachlan Fold Belt, can be interpreted in terms of extensional collapse of a forming mountain belt contemporaneous with a sharp decrease of compressional stress after the Middle Devonian Tabberabberan orogenic event. This would promote a reorientation of σ3 and transition from a compressional to a transtensional tectonic environment, which could also favour block rotation and formation of release basins.

We use the near-collapse of the Norwegian banking system during the period 1988-91 to measure the impact of bank distress announcements on the stock prices of firms maintaining a relationship with a distressed bank. We find that although banks experienced large and permanent downward revisions in their equity value during the event period, firms maintaining relationships with these banks faced only small and temporary changes, on average, in stock price. In other words, the aggregate impact of bank distress on listed firms in Norway appears small. Our results stand in contrast to studies that document large welfare declines to similar borrowers after crises hit Japan and other East Asian countries. We hypothesize that because banks in Norway are precluded from maintaining significant ownership control over loan customers, Norwegian firms were freer to choose financing from sources other than their distressed banks. We provide cross-sectional evidence to support this hypothesis.

How much do stereotypes affect person-to-person economic exchange? We present evidence from a debt-crowdfunding website that individual borrowers from high social capital regions enjoy higher funding success, larger loan size and bid size, lower interest rates, and more concentrated loan ownership. The effect is more pronounced among borrowers of no credit history or lower quality. Dyadic data show lenders from regions higher in social capital offer smaller loans at higher interest rates to borrowers from lower social capital regions. We consider a range of explanations and find our results most easily explained by investors using region-based stereotype as a heuristic in making credit decisions.

We provide a macro stress-testing model for banks' market and funding liquidity risks with a survival period of one and three months. The model takes into account the impact of both bank-specific and market-wide scenarios and considers both the first- and second-round effects of shocks. The testing model has three phases; (i) the formation of a balance-sheet liquidity shortfall, (ii) the reaction by banks, and (iii) the feedback effects of shocks. During each phase we re-count the liquidity buffer and examine whether banks hold a sufficiently large amount of liquid assets to be able to survive the liquidity tension in their balance sheets. An application to Czech banks illustrates which bank business models are sensitive to liquidity tensions. Overall, we confirm that the Czech banking system is resilient to a scenario mimicking the international liquidity crisis of 2008-2009.

In view of the banking system deregulation and bank consolidation in the United States, it is necessary to constantly evaluate the performance of the various categories of banks to document the possible impact of these policy measures. We use profit efficiency (PROFEFF), return-on-assets (ROA), interest income, non interest income and loan loss reserve as criteria for this comparison. We find that between 1997 and 1999, small banks were more profit efficient (PROFEFF) than large banks but less than medium-size banks. Since 1999, the PRO-FEFF of all sizes of banks has been on the decline but the PROFEFF of small banks declined more than that of large and medium-size banks. The ROA for all the banks under evaluation declined between 2000 and 2002. Small banks suffered the largest decline. An examination of the trend in net interest income as a percentage of average assets (NII) for the three groups of banks reveals that small banks' NII is greater than that of large banks for the entire period. And in contrast, small banks have the lowest level of non-interest income as a percentage of average assets (NONII). It is apparent that the small banks are vulnerable to increased competition offered by deregulation, technological advances, e-commerce and negative economic situation such as the current recession. These results suggest the survival of small U.S. commercial banks is in jeopardy. Since these observations result from the present policy of consolidation and bank system deregulation there is need for the Reserve Banks revisit of this policy stance.

We highlight the implications of combining underwriting services and lending for the choice of underwriters and for competition in the underwriting business. We show that cross-selling can increase underwriters' incentives, and we explain three phenomena: first, that cross-selling is important for universal banks to enter the investment banking business; second, that cross-selling is particularly attractive for highly leveraged borrowers; third, that less-than-market rates are no prerequisite for cross-selling to benefit a bank's clients. In our model, cross-selling reduces rents in the underwriting business. JEL Classification: G21, G24, D49 "Perhaps it was not such a bright idea to offer credit to investment-banking clients at lessthan-market rates-even though this has been a chief calling card over the past few years for those commercial banks that wanted to get into the juicy business of investment banking. After all, it is precisely the riskiest borrowers, those who have trouble borrowing elsewhere, that are most likely to take up aspiring investment banks on their offers of credit." (The Economist, "Thanks a bundle," August 24, 2002) * We are grateful to Martin Hellwig, Marco Pagano (the editor) and especially to an anonymous referee for very helpful comments. We also thank participants of seminars at Max Planck Institute

The purpose of this study was to examine the role of relational commitment on customer behavioural intentions in Kenya's banking sector. The basic research question examined was whether or not customer commitment in service relationships always leads to favourable customer behavioural intentions, as the study was the first to examine the nature of both relationship commitment and customers behavioural intentions and the inter-relationships between them within the financial services sector of a developing country such as Kenya. Thus, utilizing a descriptive survey research design and adapted measures of relational commitment and behavioural intentions on a sample of 334 bank account holders from 43 commercial bank branches in Mombasa, Kenya, the study provides empirical evidence of multi-dimensional nature of relational commitment and its positive and significant predictive impact on favourable customer behavioural intentions with respect to customer loyalty to the bank, re-purch...

Je tiens tout d'abord à remercier pour son appui et ses conseils en tant que directeur de thèse le professeur Frédéric Lobez. J'exprime également toute ma reconnaissance aux professeurs Michel Dietsch et Hervé Alexandre qui ont accepté d'être rapporteurs pour cette soutenance ainsi qu'au professeur Pascal Alfonse pour sa participation au jury. La plupart des travaux réalisés au cours de cette thèse n'auraient jamais pu être menés à bien sans le concours de la banque BNP Paribas, au sein de laquelle je tiens tous particulièrement remercier Madame Dominique Fiabane et Monsieur Pierre Beregovoy pour leur accueil dans les services de la direction régionale nord, et l'appui du pôle de recherche régional en Finance du nord de la France. Ces remerciements seraient incomplets si je n'y joignais pas l'expression de ma profonde gratitude envers les équipes de l'IEP de l'Université Robert Schuman Strasbourg III et du laboratoire LARGE, qui m'ont intégré pour l'achèvement de cette recherche, de même qu'envers mes collègues du GERME de l'Université de Lille II. Sommaire Introduction générale Chapitre introductif Le financement relationnel bancaire dans la littérature Chapitre 1 Financement relationnel bancaire et rationnement du crédit Chapitre 2 Choix de la banque principale de la PME, la capacité à fournir un financement relationnel compte t-elle ? Chapitre 3 Financement relationnel bancaire et conditions de financement de la PME : une étude sur données de contrats Conclusion générale Bibliographie Annexes Organisation de la thèse et contributions Le chapitre introductif de la thèse présente au travers de trois grandes sections la littérature ayant trait au financement relationnel bancaire. La première section est consacrée à un travail de définition. Nous commençons par poser les bases de ce que représente le financement relationnel bancaire, à la fois dans ses dimensions temporelles et informationnelles. La banque s'engage auprès de son client de manière implicite sur le long terme (Sharpe, 1990) en lui accordant régulièrement de nouveaux crédits. Ce faisant, elle investit dans la production d'informations qu'elle exploite de manière privée au travers de multiples interactions à la fois simultanées et étalées dans le temps (Berger, 1999 ; Boot, 2000). Puis, nous situons le financement relationnel bancaire au sein de l'offre globale de financement. Nous le distinguons à la fois des autres financements Chapitre Introductif : Le financement relationnel bancaire dans la littérature

We provide an empirical examination of the determinants of corporate debt maturity. Our evidence offers strong support for the contracting-cost hypothesis. Firms that have few growth options, are large, or are regulated have more long-term debt in their capital structure. We find little evidence that firms use the maturity structure of their debt to signal information to the market. The evidence is consistent, however, with the hypothesis that firms with larger information asymmetries issue more short-term debt. We find no evidence that taxes affect debt maturity. FINANCIAL ECONOMICS HAS MADE significant progress in explaining the incentives that lead large public corporations to choose particular financing policies. Increasingly, the profession is moving beyond an examination of the basic leverage choice to more detailed aspects of the financing decision. In this article, we extend this literature by employing data from a large sample of firms to examine hypotheses about the determinants of the maturity structure of the firm's debt. We group the hypotheses that have been offered to explain corporate debt maturity into three categories: contracting-cost hypotheses, signaling hypotheses, and tax hypotheses. Our evidence supports the contracting-cost hypotheses. Consistent with Myers (1977), firms with more growth options in their investment opportunity sets have less long-term debt in their capital structure. Large firms and regulated firms have more long-term debt. The evidence on signaling hypotheses is mixed. We find limited evidence that firms use debt maturity to signal information to the market. However, our evidence is consistent with a pooling equilibrium in which firms with larger potential information asymmetries (measured by the amount of growth options in their investment opportunity sets) issue more short-term debt. Our evidence also suggests a nonmonotonic relation between credit standing and debt maturity as predicted by Diamond (1993). We find no evidence that taxes affect debt maturity. We develop the hypotheses in Section I and describe our data in Section II. In Section III, we test hypotheses about variation in debt maturity structure, and in Section IV, we examine the robustness of our results. We present our conclusions in Section V.

This study examines the role of information asymmetry in the choice between rights issue and private equity placement from an important emerging market-India. In the post IPO scenario, Indian firms issue equity mainly through private placements as well as rights issues and followon public offers are negligible. We argue that problems associated with information asymmetry trickles down to all levels of equity issues. The outcome of this empirical exercise shows only those firms facing lesser information problems choose rights issue of equity. Private placements are chosen by firms facing higher information problems to circumvent information costs. The results remain invariant even after segregating the qualified institutional placements from private equity placement as the firms with information disadvantage choose to place equity privately.

This paper analyses the effects that public credit guarantees have on SME business activity and investment. We focus the study on the main regional mutual guarantee institution in the Spanish Region of Madrid, covering two distinct stages of the economic cycle and credit environments: first, the full range of the country's financial crisis with credit constraints (2009-2011), and later, the recovery stage with credit expansion (2012-2015). Using propensity score matching based on economic activity and company size, we show that guarantees allow for the relaxation of credit constraints, driving turnover and investment during both recession and growth. We also find that mutual guarantee schemes constituted a greater stimulus for firms during contraction; thus, they can act as countercyclical policies. Moreover, although guarantees had a substantial effect on all small companies (those with fewer than 50 employees), they had the greatest impact on microenterprises (those with fewer than 10 employees). We show the activities for which guarantees constitute a greater boost, which may inform public-policy designs for specific types of business.

focuses on high quality research in economics and business, with special attention to a multidisciplinary approach. In the working papers series the U.S.E. Research Institute publishes preliminary results of ongoing research for early dissemination, to enhance discussion with the academic community and with society at large.

The presence of venture capital in the ownership structure of U.S. firms going public has been associated with both improved long-term performance and lower underpricing at the time of the IPOs. In Japan, we find the long-run performance of venture capital-backed IPOs to be no better than that of other IPOs, with the exception of firms backed by foreign owned or independent venture capitalists. Many of the major venture capital firms in Japan are subsidiaries of securities firms that may face a conflict of interest when underwriting the venture capital-backed issue. When venture capital holdings are broken down by their institutional affiliation, we find that firms with venture backing from securities company subsidiaries do not perform significantly worse over a three-year time horizon than other IPOs. On the other hand, we find that IPOs in which the lead venture capitalist is also the lead underwriter have higher initial returns than other venture capital-backed IPOs. The latter result suggests that conflicts of interest influence the initial pricing, but not the long-term performance, of initial public offerings in Japan. Institutional Affiliation and the Role of Venture Capital: Evidence from Initial Public Offerings in Japan

This paper studies the relation between average growth and growth volatility. To do so a two period model is built which focuses on how firms choose their debt portfolio maturity. Due to imperfect enforceability problems, we show that contracts financing long term investments are biased towards short-term debt. This can generate maturity mismatches between assets and liabilities and lead to liquidity crises. Then it is shown that the relation between average growth and growth volatility is more likely to be negative in developing countries while it is more likely to be positive in developed economies. We therefore invalidate the idea that volatility is the price for rapid growth in emerging market countries. This framework also allows us to assess the impact of foreign direct investment (FDI) and financial opening (FO). We show that FDI has stabilizing effects in developing economies while FO has destabilizing effects. On the contrary in developed economies FO has stabilizing effects.

Recently, scholars have made extensive efforts to understand the debt structure composition of the organizations. Specifically, to know about the causes of debt specialization which is concealed in identifying the antecedents of it. This question is essential not only for establishing the field of debt structure, but also for the financial managers to design corporate financial strategy in a way that lead to attain optimal debt structure. In order to advance our understanding of this extremely important conversation in corporate finance, this study is intended to investigate the theoretical and empirical foundations for the antecedents of debt specialization and the extent to which capital structure theories adequately explains the reasons of it. Previously, very few studies i.e., Colla et al., (2013), Li et al., (2014) and Tengulov, (2015) are conducted in this context. Therefore, research scholars are still in infancy to generalize the predictors of debt specialization. This justifies a need for further empirical investigations of more antecedents of debt specialization which are theoretically relevant. The present study is subsequently one of the prime studies that systematically and thoroughly investigates the most important predictors of debt specialization apart from the fact that there is a serious lack of academic literature on the topic. It attempts to contribute to the recent emerging debate in the debt structure by including a wide range of theoretically supported organizational and non-organizational antecedents of debt specialization. In this way, it provides further empirical and theoretical, cross country evidences to support the existence and prevalence of the strategy. In order to address these issues, a panel data approach is utilized for 410 non-financial publically traded companies listed at Karachi Stock Exchange during the period of 2009-2013. The secondary data for the study variables is collected from multiple sources. We also perform certain data selection rules and end up with 2,050 company-year observations. This research also discusses and clarifies several measurement caveats related to the study variables and then justified them on the basis of nature of the study, capital structure theories and prior empirical work. The data is subsequently analyzed through various statistical techniques such as Cluster Analysis, Threshold Analysis, Conditional Debt Structure, Group Comparisons, Correlation, Linear Regression Modeling to answer the research questions. The results authenticates the existence and relevance of debt specialization phenomenon across organizations by specifying that 67% Pakistani companies rely on only one type of debt. In order to better explain

We derive empirical implications from a theoretical model of bank–borrower relationships. The interest‐rate mark‐ups of banks are predicted to follow a life‐cycle pattern over the age of the borrowing firms. Because of endogenous bank monitoring by competing banks, borrowing firms initially face a low mark‐up, and thereafter an increasing mark‐up as a result of informational lock‐in, until it falls for older firms when the lock‐in is resolved. By applying a large sample of predominantly small unlisted firms and a new measure of asymmetric information, we find that firms with significant asymmetric‐information problems have a more pronounced life‐cycle pattern of interest‐rate mark‐ups. Additionally, we examine the effects of concentrated banking markets on interest‐rate mark‐ups. The results indicate that the life cycle of mark‐ups is mainly driven by asymmetric‐information problems and not by concentration. However, we find evidence that bank market concentration matters for older ...

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The Japanese "main bank system" figures prominently in the recent literature on "relationship banking." By most accounts, the main bank epitomizes relationship finance: traditionally, every large Japanese firm had one, and that bank monitored the firm, participated in its governance, acted as the delegated monitor for other creditors, and rescued the firm if it fell into financial distress. Yet all this has begun to change, continue these accounts. Japan deregulated its financial markets in the 1980s, and many firms abandoned their relational lender for market finance. As the main banks then lost their ability to the constrain firms-as relationship banking unraveled-the firms gambled in the stock and real estate bubbles, the bubbles burst, and the firms threw the country into recession. Using financial and governance data from 1980 through 1994, we show that none of this is true. The accounts of the Japanese main bank instead represent fables, stories we collectively recite because they so conveniently illustrate the theories and models we hope to develop. Whether during the 1980s boom or the 1990s recession, they bore no resemblance to any aspect of Japanese corporate finance or governance.

, "Evolving credit markets and business cycle dynamics" Conference (European University Institute). Luigi Guiso also thanks the EEC and MURST for financial support. Luigi Zingales also thanks the Center for Security Prices and the Stigler Center at the University of Chicago for financial support. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.

We show that firms with illiquid stock pay higher syndicated loan spreads. This result is invariant to multiple measurements of stock illiquidity, and is robust to a wide set of cross-sectional loan and firm features, firm and year fixed effects. This result also holds using matched difference-indifferences at an exogenous reduction in the minimum tick size of major United States exchanges and using a two-stage least squares estimator. Stock illiquidity is, moreover, shown to diminish the benefit to the loan recipient of a lending relationship. A rationale for these findings is that stock market illiquidity impairs the bargaining power of corporate borrowers, in the loan spread negotiating procedure, as it raises the cost of alternatively issuing equity. Our findings, thus, indicate that relative bargaining power plays a systematic role in determining syndicated loan spreads.

Present-day policies aiming to improve the performance of credit markets, such as grouplending or creation of collateral, typically aim to change incentives for borrowers. In contrast, pre-modern credit market interventions, such as usury laws, often targeted the behavior of lenders. We describe and model a norm which, though widespread, has escaped scholarly attention: a stipulation that accumulated interest cannot exceed the original principal, irrespective of how much time has elapsed. We interpret this rule, which is found in Hindu, Roman, and Chinese legal traditions, as giving lenders the incentive to find more capable borrowers, who will be able to repay early, thereby improving the allocation of capital. We document the consistency between our explanation and the rationale offered by policy-makers.

Post crisis, bank loan spreads increased and have remained elevated despite central bank actions, low LIBOR rates and observed Treasury yields. Using large syndicated loan dataset, this paper estimates that a one percentage point to GDP increase in government deficits increases spreads by around nine basis points on average. This is consistent with partial crowding out. Weaker country risk ratings, larger loan size also increase spreads. Finally, the paper provides evidence that US deficit spending results in a crowding out of around one-half in loan markets and have some crowding out of loans in other markets.

Post crisis, bank loan spreads increased and have remained elevated despite central bank actions, low LIBOR rates and observed Treasury yields. Using large syndicated loan dataset, this paper estimates that a one percentage point to GDP increase in government deficits increases spreads by around nine basis points on average. This is consistent with partial crowding out. Weaker country risk ratings, larger loan size also increase spreads. Finally, the paper provides evidence that US deficit spending results in a crowding out of around one-half in loan markets and have some crowding out of loans in other markets.

The paper investigates whether firms have better access to bank credit in areas with a larger degree of urbanization. It uses bank-firm data drawn from the Credit Register maintained at the Bank of Italy to devise an indicator of ease of access to credit. The paper proposes an instrumental variable strategy that uses as instruments past population density and urbanization driven by considerations of political economy. The results show that urbanization affects access to credit positively for construction firms, whose collateral greatly benefits from thicker real estate markets. No impact is found for service and manufacturing firms.

In this paper we investigate the relationship between the number of lawyers and civil litigation across Italian provinces over the period 2000-2005. We first document the existence of a positive correlation between the number of lawyers and litigation. We then employ a 2SLS approach to verify the existence of a causal effect. We use as an exogenous source of variation for the number of lawyers the differences among provinces in the proximity to a law school in 1975. Our results show that the number of lawyers has a positive effect on litigation and that the magnitude of this effect is large.

We estimate a structural econometric model for the credit market in Italy, using bank-level information and the responses of Italian banks to the euro-area Bank Lending Survey to identify demand and supply, focusing on the recent financial crisis. The main results are the following. First, while in normal circumstances the functioning of the Italian credit market is consistent with a standard imperfect-competition model, during phases of high tension there are credit-rationing phenomena. Second, supply restrictions have a relevant impact on lending, both when they are due to banks' balance-sheet constraints and when they are the effect of greater perceived borrower riskiness. Third, to a large extent the tightening during the sovereign debt crisis reflected the common shock of the widening sovereign spread, not idiosyncratic bank funding problems. Fourth, the role of supply was stronger during the sovereign than the global financial crisis, mainly due to greater banks' funding difficulties. In a counterfactual exercise we estimate that in the second quarter of 2012 interest rates were more than 2 percentage points higher and the stock of loans more than 8 percent lower than would have been the case without the tightening of lending standards in the course of the entire crisis.

Using a unique panel design that enables to control for bank, firm, market and loan heterogeneities, we confirm that relationship lenders charge higher rates in good times and lower rates in bad times. However, we show that risky single-bank firms do not benefit from this insurance mechanism and are "held-up" by relationship lenders. Local bank competition and higher non-bank finance dependence alleviate this informationmonopolistic behavior. Finally, long-term loans and small, non-trading-oriented and wellcapitalized banks drive the benefits of relationship lending.

the editor Avanidhar Subrahmanyam, an anonymous referee, and the seminar participants at the NBER market microstructure conference and the 2007 AFA meetings for helpful discussions and comments on earlier drafts. We also thank Loan Pricing Corporation and Loan Syndications and Trading Association for providing us the data for this study. We remain responsible for all errors.

This paper examines the relation between the corporate life cycle and lending spreads. Using a sample of 20,307 firm-loan observations spanning 5,076 publicly traded U.S. firms, we find that lending spreads follow a U-shape pattern across the life cycle phases. This pattern is in addition to the variation explained by typical controls. In a multivariate analysis, we find that firms in the introduction and decline phases pay lending spreads that are greater than firms in the mature phase (differences of 6 percent and 12 percent, respectively). We explore omitted variables bias and instrumental variable estimation in robustness testing and find that the U-shape pattern persists. Our findings are consistent with theoretical predictions regarding the relationship between the corporate life cycle and various lending risks.

Examining bank behavior around Federal Reserve stress tests, we find that stress test banks increase capital ratios at the starting point for annual stress testing significantly more than nonstress test banks. These trends are completely reversed (and economically significant) in the other quarters. Further, the differences between stress test and non-stress test banks seen in stress test years do not occur in 2010, when the Fed did not conduct a stress test. Results show that, as they enter the stress test, stress test banks lower dividends significantly more than non-stress test banks. Finally, stress test banks spend significantly more on lobbying than non-stress test banks. The results suggest that stress test banks may be managing financial performance and investing in political spending to improve their chances of passing stress tests.

This paper highlights the importance of bank-based finance for the innovation activity of UK firms. It identifies both theoretically and empirically how bank shocks affect firms' innovation. We develop a theoretical model, and test its predictions using a new matched bank-firm-patent dataset for the UK. We find that bank distress during the 2008 and 2011 crises negatively affected firms' innovation behavior. After carefully controlling for several potential biases in estimation we find that firms whose relationship banks were distressed not only patented less, but those patents were of lower technological value, less original and of lower quality. The negative effect is significantly larger in the case of small and medium size enterprises (SMEs). We also find that banks' specialization in financing innovation mitigates the impact of bank distress on innovation.

Purpose: Commitment in underpinning long‐term business relationships is well established.  Limited research exists involving relationships between SMEs and banks. The paper presents an instrument to assess such relationships and is evaluated for validity and reliability with reference to the Nigerian SME‐banking environment. Design/Methodology / Approach: Various scale sets from existing studies are combined to assess commitment and advocacy and repurchase intention.  Data was collected from 199 SMEs via interviews with owners or senior managers.  Analysis involved exploratory factor analysis to determine the underlying data structure, with internal reliability assessment. Findings: Commitment is based on two components; affective and calculative, whilst advocacy and repurchase intention converged into a single factor.  This SME‐bank relationship has some way to mature with the banks affording only modest financial support, although SMEs' commitment and levels of loyalty appear ...

PurposeThis study examines the mediating effect of normative commitment, that is, a customer's feeling of moral obligation to stay in a relationship based on the psychological feeling that it is the right thing to do. Previous studies have neglected normative commitment due to its complexity and poor fit with predominantly Western individualistic cultures.Design/methodology/approachAn empirical study was conducted in the collectivist culture of Nigeria, West Africa. The unit of analysis was the business-to-business (B2B) relationship between small to medium-sized enterprises (SMEs) and their bank.FindingsThis study arrived at two key findings. First, normative commitment is insignificant in acting as the mediator of a relationship in both overall satisfaction and social bonding on advocacy. Second, overall satisfaction and social bonding are positively significant in predicting normative commitment and advocacy.Research limitations/implicationsThis study focussed solely on an SM...

Purpose The purpose of this paper is to evaluate the role of the commitment between small and medium enterprises (SMEs) and their banks in Nigeria from the perspective of the senior SME employees. The antecedents to, and outcomes from, commitment that underpin these crucial business-to-business (B2B) relationships are quantified as part of a proposed relationship model. Design/methodology/approach In total, 850 SMEs located across three Nigerian regions were targeted leading to the achievement of 491 complete surveys. The data collected comprised various validated items from which scales were developed. Data collection was supported by means of face-to-face interviews with senior SME representatives. Confirmatory factor analysis and structural equations modelling (SEM) were employed to validate the research model and quantify the associated relationships. Findings Two dimensions of commitment are relevant here, namely, the affective and calculative components. The key respective ant...

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The London House of Rothschild depended on Brazil to maintain its reputation. This became a problem in the 1890s, when the Brazilian government almost defaulted on its sovereign debt after a change of regime had made politics unstable and economic policy unorthodox. This article shows how the relationship between the bank and the state developed to the point that Rothschilds was forced to rescue its client. Exposure enabled Brazil to implement policies designed to defend the regime at the expense of payment capacity without defaulting. The debt crisis ended only after the political situation stabilized toward the close of the century, when the bank pressured the government to tighten economic policy. "If the country must default, the honourable thing to do is to confess the fault at once and meet the issue frankly." 1 Underwriters played a key role in nineteenth-century global fi nance. Banks in charge of underwriting sovereign debt negotiated lending conditions, fl oated bonds on the market, and transferred resources between fi nal creditors and borrowing governments. Underwriters also endorsed loans; although they did not guarantee these obligations,

Is there a relationship between bank monitoring models and the level of shadow economy? This paper develops a model of optimal lending technology to study the relationship between local underground economic activity and banks' lending choices. In turn, as the aggregate level of informality and tax evasion increase, it becomes more profitable for banks to screen and supervise borrowers using more costly in-depth monitoring technologies. A large dataset of regional Italian data confirms these conjectures.

This issue of the CNB Research Bulletin is focused on fi scal policy. This is the second time in the four-year history and nine issues of the Bulletin that fi scal policy aspects have taken centre stage. This clearly demonstrates the relevance that fi scal policy research has gained in the CNB. Such an observation is hardly surprising given that the Czech economy is gearing up for the euro and fi scal policy seems to be one of the bottlenecks in this process. Three years ago, in the fi rst fi scal Bulletin, the research was concentrated mainly on getting a more appropriate fi scal database and on some of the macroeconomic aspects of fi scal policy. Now, while keeping the macroeconomic relevance, we focus in more detail on fi scal sustainability and on assessing the impact of tax instruments on real economic activity. The literature describes many ways of tackling fi scal sustainability. The fi rst article-by Aleš Krejdl-summarises the different approaches to fi scal sustainability and then applies two of the most widely used indicatorsthe primary gap and the tax gap-to the Czech fi scal outlook. Another way of addressing fi scal sustainability is to develop generational accounts. This is done-for the fi rst time in the case of the Czech Republic-in the article by Kamil Dybczak. This approach sheds new light on how (un)fair our current fi scal policy is from the intergenerational perspective. The last article-by Alena Bičáková, Jiří Slačálek and Michal Slavík-aims to quantify the impact of labour taxation on labour supply and consequently on the fi scal balance. Again, this is the fi rst time that such an analysis has been performed on the Czech economy.